After the failure of healthcare reform, Republicans in Washington have turned to tax reform as their next major effort.

The House of Representatives recently passed its version of a tax-reform bill, but the version that's currently making its way through the Senate looks rather different. Before any tax reform proposal can be signed into law, both chambers must pass identical bills.

With that in mind, here's a rundown of the most important similarities and differences between the two versions of the Tax Cuts and Jobs Act.

Black notebook on a desk with tax reform in yellow letters on the cover.

Image Source: Getty Images.

Individual tax brackets and standard deductions

For individuals, one of the most important differences between the two bills is how the marginal tax brackets for individuals would be structured.

The House's version of the bill would reduce the number of brackets to four, keeping with the GOP's promise to simplify the tax code, with rates of 10%, 25%, 35%, and 39.6%. On the other hand, the Senate would keep the seven-bracket structure, but with lower rates. Currently, we have marginal tax rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, and the latest version of the Senate's plan would lower these to 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. The Senate's bill makes its individual tax cuts temporary, while the House's plan makes them permanent.

In addition, both bills would get rid of personal exemptions, but would roughly double the standard deduction.

Tax Filing Status

Current 2018 law

House bill

Senate bill

Single

$6,500

$12,200

$12,000

Head of household

$9,550

$18,300

$18,000

Married filing jointly

$13,000

$24,400

$24,000

Data Source: Tax Foundation.

Corporate taxes: A few key differences

For starters, both versions of the Tax Cuts and Jobs Act would lower the top corporate tax rate from 35% to 20%. The key difference is that the cut would go into effect in 2018 under the House's plan, while the Senate would delay the cut until 2019.

Businesses would also be able to repatriate cash held overseas at a special 14% rate under the House bill, while the Senate would allow a lower 10% rate.

Another key difference is what the bills do for pass-through income, which is income earned through a LLC, S-Corp, or partnership. The House bill lowers the top pass-through income tax rate from 39.6% to 25% for small businesses. The bill also has a 9% rate on the first $75,000 in income for business owners making $150,000, which will phase in over five years. The Senate's latest proposal would take a somewhat different approach and allow a 17.4% deduction of business income for certain industries.

Tax deductions and credits for individuals

Let's start with the largest tax deduction of all, under current law. The state and local tax deduction, also known as the SALT deduction, is a big deal to Americans who live in high-tax states, such as California, New York, and New Jersey. The Senate bill eliminates this deduction completely, while the House allows for a deduction for property taxes only, up to $10,000.

Some major deductions would be preserved under both bills. Specifically, both preserve the mortgage interest deduction, but the House bill caps it at up to $500,000 of principal (current law is a $1 million maximum.) They also both keep the deduction for charitable contributions, as well as the adoption tax credit, which originally was not included in the House bill, but was part of the amended version that passed.

Furthermore, both versions of the bill would increase the tax credits available to families, but the Senate bill is significantly more generous in this respect. The House bill raises the current $1,000 child tax credit to $1,600 and introduces a new "Family Flexibility Credit" worth $300 per year for individuals and $600 for couples. On the other hand, the Senate bill calls for a $2,000 child tax credit and provides for a $500 credit for other qualifying dependents, and also dramatically increases the phase-out income limit for the credit.

The bills' effects on education tax breaks are a major difference. The Senate bill preserves most education tax benefits, while the House bill makes significant changes to some potentially valuable education tax breaks. Just to name a few:

Finally, the Senate's bill preserves a few more key deductions that the House's version would get rid of, including the deduction for student loan interest, as well as the medical expense deduction.

Two major tax breaks for the wealthy

Both versions of the bill would immediately double the lifetime exemption for the estate tax to about $11 million for individuals and $22 million for couples. The key difference is that under the House bill, the estate tax goes away completely in 2024, while the Senate keeps the tax, just with the higher exemption amounts.

Furthermore, both bills would repeal the Alternative Minimum Tax, or AMT, which ensures that high-earners pay a minimum amount of tax, even if they have massive amounts of deductions.

The Senate bill revisits part of the Affordable Care Act debate

Finally, it's important to mention one provision that was recently added into the Senate's version of the bill. The latest version would reduce the penalty for not having qualifying health insurance, known as the individual mandate, to $0. The House's version does not make changes to any healthcare-related tax provisions.

What will tax reform actually look like?

I mentioned in the introduction that in order for tax reform to become law, the House and Senate will need to pass identical bills. And as you can see, while most of the main ideas are the same, the execution is far from identical at this point.

For this reason, assuming that the Senate's version passes, there will likely be lots of compromise between GOP leaders in the House and Senate to try and iron out the differences between the two. The bottom line is that the eventual tax reform bill that is passed (if any) is likely to be significantly different than either of the two versions we've seen so far.

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